Forest products exports and economic growth: evidence from rich countries

The forest sector contributes a significant share to national income. The existence and magnitude of causal relationships between forest product exports and economic growth is thus important to understand not least for policy issues. It has vital implications for policy-makers enacting proper development strategies. This causality is usually analyzed using the export-led economic growth hypothesis. International trade is affecting economic growth through enhanced competition and specialization. Export, more specifically, foster economic growth via the accumulation of foreign exchange, by stimulating efficient investments in the right sectors and by allowing for improved economies of scale. Surprisingly, practically no studies have been done analyzing the forest products export-led economic growth hypothesis. Thus, the current study fills an important gap in the literature. The study attempts to test the forest product export-led growth hypothesis for 22 economies over the period 1970 to 2011. Various generations of panel unit root and cointegration tests are applied. The time frame and the selection of countries are purely dictated by the availability of data and the amount of existing productive forest area. The econometric tests are based on augmented Dickey-Fuller unit root and cointegration tests. These tests are necessary before assessing the impact of forest product exports on GDP. The connection between economic growth and forest products exportation is analyzed using an error correction model (ECM) based panel causality test structure. The ECM is subsequently used to estimate short- and long-run elasticities. The series are found to be integrated of order one and cointegrated, especially when applying the third-generation tests. Uni-directional causality running from forest product exports to economic growth is uncovered in the both the short-run and the long-run. Moreover, forest products exportation is found to positively affect economic growth. The short-run elasticity reveals positive and significant income elasticity. A 1% increase in forest product exports will lead to a 0.022% increase in economic growth in the short-run and 0.002% in the long-run. The regional dummy is also significant and positive, implying that countries with significant forest land coverage are bound to experience higher economic growth. The findings will help policymakers in their projections and implementing natural resource and forest policies. Unidirectional causality implies forest product exports can be used to predict economic growth in both short-run and long-run but not vice versa. In general, the results support the ELG hypothesis. Promotion of forest product exportations can lead to a multiplier effect.